By Norihiko Shirouzu
BEIJING (Reuters) – Renault SA (OTC:RNLSY) and China’s Geely said on Tuesday they have agreed to launch a new, equally held joint venture that will supply gasoline engines and hybrid technology to the brands they own as well as to other automakers.
While it was not immediately clear whether the venture represents a step towards even closer collaboration on gasoline cars between the two companies, it marks a critical step in the French automaker’s complex restructuring.
As well as seeking to carve out its internal combustion business, the Renault (EPA:RENA) has been in talks to revamp its alliance with Nissan (OTC:NSANY) Motor Co and convince its Japanese partner to invest in its new electric unit.
The scale of the overhaul – encompassing the gasoline engine business it has code-named “Horse” and the electric one code-named “Ampere” – speaks to the pressure automakers now feel from investors and regulators to quicken their embrace of electric vehicles, with Europe having effectively banned combustion engines from 2035.
Renault’s joint venture with Geely will employ 19,000 people at 17 powertrain factories and three research and development hubs, the companies said, adding they expect to reach a final agreement and launch the new company in 2023.
The preliminary agreement with Geely, with which Renault has been negotiating in earnest for at least three months, is non-binding, a person with knowledge of the terms told Reuters.
The new company will be based in London, said the person, who was not authorised to speak to media and declined to be identified. Renault and Geely will each hold 50%, the companies said in a statement that did not detail other financial terms.
For Geely, the deal extends its pattern of building partnerships to expand beyond China. Geely also owns Volvo Cars and has a 9.7% stake in Daimler AG (ETR:MBGn).
Still, the outcome of Renault’s talks with alliance partner Nissan remain an open question. Nissan has said it is considering an investment in the Ampere venture.
However, Nissan has raised concerns about the treatment of intellectual property, including battery and powertrain technology, in its talks with Renault and has indicated those concerns extend to any partnership the French automaker strikes with Geely, people with knowledge of the discussions have said.
Renault and Geely said they expect their new joint venture would supply internal combustion engines and hybrid powertrains to Nissan and the junior partner in Renault’s existing alliance, Mitsubishi Motors (OTC:MMTOF).
They said it would have the capacity to supply about 5 million engines and hybrid systems per year once operational.
Nissan had no immediate comment.
The announcement came ahead of Renault’s capital markets day on Tuesday in Paris where Chief Executive Luca de Meo is scheduled to update investors on the company’s strategy and financial projections.
Renault’s De Meo has said the automaker was seeking a partner that would bring scale and drive down cost in its internal combustion business, including hybrids.
Renault and Geely Automobile also have an existing joint venture in South Korea.
Separately, Volvo Cars said it would divest its 33% stake in its Aurobay unit to Geely, without disclosing terms.